November 25, 1998
Here's a news story about comments made by state regulators regarding day trading.
"Wednesday November 25, 6:08 pm Eastern TimeFOCUS-State regulators warn about risks of day trading
(Recasts lead, adds background, reaction, edits)
By Joanne Morrison
WASHINGTON, Nov 25 (Reuters) - State securities regulators on Wednesday warned investors of the risks of so-called day trading, in which investors try to profit from stock movements by rapidly buying and selling shares in a single day.
'For the typical retail investor, day trading isn't investing. It's gambling,' said Phillip Feigin, executive director of the North American Securities Administrators Association (NASAA).
Day traders dart in and out of stocks hoping to make a quick hit, shunning the more traditional buy-and-hold strategy in hopes of accumulating profits of pennies per share on several transactions.
For the sophisticated market player, Feigin said, speculative day trading is fine.
But the state regulatory group said it is concerned that brokers that specialize in day trading services might not adequately inform investors about the risks.
It also raised concerns that some firms might be trying to attract Main Street investors unaware of the potential risks.
'I turn away more than I accept. I say if you don't have sufficient capital, then the odds are even more against you,' said Chris Cheshire, who owns Day Trade Inc. in Jacksonville, Fla. His warnings about the business echoed those of state regulators.
Still, the business is growing, with about 300 such trading outlets nationwide giving mainstream investors the opportunity to trade for their own account without the cost of a full-service broker.
Cheshire admitted the business coupled big risks with the promise of big rewards.
'You want to go in knowing you are going to lose 50 percent of the time,' he said.
He agreed day trading, which accounts for about 12 percent of daily Nasdaq volume, is not for the usual investor.
'It's for people who want to trade, these are not investments, these are trading opportunities. This is strictly doing exactly what Merrill Lynch and Dean Witter have been doing for years, it's just now the door's open so the general public can get in,' Cheshire said.
NASAA's Feigin noted that most of these investors do not consider important company information, but focus solely a stock's movement on a given day.
State regulators are concerned that many novice day traders have unrealistic expectations. 'A mouse and a modem alone won't make you a successful day trader,' warned Peter Hildreth, New Hampshire's director of securities and NASAA's president.
'Successful day trading takes hard work, discipline, a strong stomach, and luck,' Hildreth added.
Regulators said they are also concerned about investors conducting similar types of trades at home through online brokerage services like E*Trade (Nasdaq:EGRP - news), Datek Online and Ameritrade.
'When you trade online there's no one standing between you and the market. No one's obligated to ensure that the investment is appropriate given your age, income and financial goals,' Hildreth said."
I have always wondered how politicians and regulators set their priorities as far as getting involved in something. It's like with law enforcement, in my opinion, there should be no ticket issued to an adult for not wearing their seatbelt (the breaking of this law only puts the person breaking the law in danger) until all the speeders, tailgaters, and etc. are ticketed. However, I know this is not true because the last ticket I got was for not wearing my seatbelt. I think it's the same for the securities law enforcers, they need to set priorities. And baby sitting day traders should not be one of their priorities.
There is rampant insider trading going on, virtually every stock listed on the NYSE or NASDAQ/AMEX will experience insider trading at sometime or another. As an investor you have a choice as to day trade or not, you don't need the SEC's help in making that decision. However, when it comes to insider trading you have no choice because no matter what stock you own, you will eventually be affected by insider trading. You, yourself can't do anything about insider trading and need the SEC to do their job regarding this issue.
The internet stocks are going to run into the same type of issue, that is, they will tank at some point and all the owners of these stocks will cry to the SEC. The SEC will waste tax payer dollars to investigate. Their investigation won't do any good because these same individuals and institutions will turn right around and do the same thing again. What the SEC needs to do when this happens is only to make one statement: "There were numerous reports out on national media sources clearly stating the risks of investing in internet stocks, if you made the choice to ignore these warnings, you have only yourself to blame. End quote."
One final thought, here's a quote from the above article, "For the sophisticated market player, Feigin said, speculative day trading is fine." I'll bet Feigin would call Long-Term Capital a sophisticated market player. At least most day traders are playing with their own money or their own borrowed money whereas Long-Term Capital is betting other people's money. If the regulators want to get involved, let them get involved with Wall Street firms like Long-Term Capital and not the individual day traders.